Ivan Glasenberg. Picture: REUTERS
Ivan Glasenberg. Picture: REUTERS

Diversified global miner Glencore has significant growth options in copper and zinc, the prices of which are benefiting from the roll-out of electric vehicles and energy storage, says CEO Ivan Glasenberg.

The group, which has coal mines and ferrochrome smelters in SA, turned its 2016 basic interim loss of $0.03 per share into a profit of $0.17 per share in the six months to June.

Adjusted earnings before interest and tax rose fourfold to $3.8bn compared with the same period in 2016, reflecting higher commodity prices and a focus on cost-containment.

Glencore generated $5.2bn cash from its operations and distributed $500m to shareholders, after a similar distribution in May, equivalent to a dividend of $0.07 a share.

Chief financial officer Steve Kalmin said Glencore would not distribute more than the $1bn for 2017 that was promised in February to give certainty to investors and ensure balance sheet strength. In 2018, it would distribute a minimum of $1bn from its marketing cash flows plus 25% of free cash flow from the industrial assets, also in two equal instalments.

Macquarie, which has an "outperform" recommendation on Glencore shares, said in a note that Glencore’s underlying earnings were in line with consensus forecasts, but its net debt was slightly higher than generally expected.

"Glencore remains our preferred diversified miner in Europe, given its favourable commodity basket, high margin latent capacity in copper and zinc and its attractive valuation," Macquarie said.

Glencore shares slipped 2.6% to R57.79 on the JSE and 2% on the London Stock Exchange to £3.33 by mid-afternoon on Thursday. Glencore’s preferred commodities were those where future supply growth was constrained, Glasenberg said. For copper and cobalt, in particular, there were no new big projects in the global pipeline.

By 2019, more copper would be coming from mines such as Glencore’s Katanga, BHP Billiton/Rio Tinto’s Escondida and Glencore/Anglo American’s Collahuasi, but less from other major producers.

Glencore had material growth options in copper and zinc, Glasenberg said. An additional 400,000 tonnes a year would come from its African copper assets and it would bring on line about 400,000-500,000 tonnes of mothballed zinc production in Australia and Peru slowly and sequentially in response to demand to ensure it did not depress prices.

Even if predictions that 30% of the global car fleet would be electric by 2030 were overoptimistic and the proportion only half that, it would still represent a significant increase in demand for copper, nickel and cobalt, Glasenberg said.

The outlook for nickel prices depended on whether more nickel pig iron was produced, which would free pure nickel for use in electric vehicles.

Glencore’s preferred growth options were firstly brownfields expansions of existing operations and, secondly, mergers and acquisitions. These provided more certainty on budgets, operating costs and delivery of production than greenfields developments, Glasenberg said.

But if those options could not generate enough new supply, Glencore might have to consider greenfields projects.


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